Looking for the secret alternative to bankruptcy which will solve your debt problems without filing?
Ads for debt settlement companies and do-it-yourself books always promise to reveal the tricks to make your bills vanish for pennies, without resort to bankruptcy.
(Isn’t it interesting that these “secrets” are known only by people who want to sell you something? A book, a debt settlement plan, a seminar?)
I’m tempted to ask clients who ask about the secret bankruptcy alternatives: do you also believe in the tooth fairy, Santa Claus, and leprechauns with pots of gold?
Unkind, I know.
But in the information age, it ought to be obvious: There are no painless, quick fixes.
Settle your debts for pennies
Yes, it is theoretically possible to get a settlement of each of your debts that gives you the same result as bankruptcy.
But it is seldom a realistic option because
- It requires cash to pay each settlement
- It requires 100% of your creditors to agree to terms
- It takes time and effort to negotiate deals
- Not all creditors are prepared to deal
- It’s dependent on no negative financial changes in the future
And in the meantime, your credit report gets trashed. Often, the unpaid creditor sues.
Then there’s the nasty tax consequence of settling debt. Forgiven debt is treated like cash income. And income is subject to tax.
The debt settlement folks have no power to make it otherwise.
Why bankruptcy works
Bankruptcy works because it binds all creditors. All creditors, even the IRS, have to stop collection action.
If they don’t, a federal judge is available to make them stop, and pay for having violated the automatic stay.
Bankruptcy limits any payment to creditors to the value of your assets today, after giving you credit for exemptions.
After the bankruptcy discharge, the debt that is wiped out is gone forever.
The bankruptcy discharge generates no tax consequences.
Get on with life
People in debt need relief from the stress that debt brings with it.
Stress actually makes you stupid
They need to save for retirement. They need to create an emergency fund.
They need these things NOW.
Bankruptcy does that. No secrets; no magic, no kidding.
Questions to ask a bankruptcy lawyer
How much should bankruptcy cost
What you keep after bankruptcy